U.S. Department of Education
Office of Inspector General
American Recovery and Reinvestment Act of 2009
Virgin Islands Department of Education’s Current Efforts to Address Prior Audit Findings
Alert Memorandum
ED-OIG/L04J0015January 2010
Alert Memorandum
ED-OIG/L04J0015Page 1 of 3
January 13, 2010
ALERT MEMORANDUM
To:Thelma Melendez de Santa Ana, Ph.D.
Assistant Secretary
Office of Elementary and Secondary Education
Philip Maestri
Director
Office of the Secretary, Risk Management Service
From:Keith West /s/
Assistant Inspector General for Audit
Subject:Virgin Islands Department of Education’s Current Efforts to Address Prior Audit
Findings
Control Number ED-OIG/L04J0015
The purpose of this alert memorandum is to highlight issues that could affect education funds provided to the Government of the Virgin Islands (GVI) through the American Recovery and Reinvestment Act of 2009(ARRA). In a recent audit[1] of the Virgin Islands Department of Education (VIDE), we found that although VIDE had implemented some controls to address prior audits, it had not sufficiently addressed or taken the necessary actions to resolve prior recommendations in the areas of (1) Financial Management, (2) Human Capital, and (3) Property Management and Procurement. We became aware of these issues during our audit of the VIDE’s current efforts to address prior audit findings.
VIDE has had a history of unsatisfactory performance in the administration of the Department’s programs, and our audits continue to identify systemic internal control weaknesses. Based on our review of VIDE’s corrective actions related to recommendations in our prior reports, we found that VIDE did not ensure that corrective actions were taken to adequately address the deficiencies identified. In addition, the GVI is not current with its OMB Circular A-133 audits. Specifically, GVI submitted its A-133 audits late for audit years 2003, 2004, 2005, and 2006. The GVI had not submitted its A-133 audits for 2007 or 2008.
Since 1999 the Department imposed special conditions on grant awards to the GVI and its agencies. According to the special conditions, noncompliance with any of the special conditions will negatively impact the GVI and its agencies’ ability to continue to receive Department funds and could result in enforcement or other actions. According to Section 454 of the GeneralEducation Provisions Act
(20 U.S.C. § 1234c),when a recipient “is failing to comply substantially with any requirement of law applicable” to the Federal program funds, the Department is authorized to 1) withhold funds; 2) obtain compliance through a cease and desist order; 3) enter into a compliance agreement with the recipient; or 4) take any other action authorized by law.
VIDE, as a high-risk grantee, requires close monitoring, which requires greater Departmental oversight and a stronger independent internal audit function with a staff of sufficient size and experience level. Because of the GVI and VIDE’s longstanding and recurring findings of fiscal and programmatic accountability deficiencies in the administration of Department programs, the Department should take stronger action than previously imposed to bring the GVI into full compliance with all Departmental requirements. If stronger action is not taken, the GVI may continue to have significant problems in administering Department grant programs and funds.
As detailed in the attached report to GVI and VIDE, the issues and corresponding recommendations that GVI and VIDE had not sufficiently resolved are significant for all Department funds. In addition to the funds that VIDE is otherwise authorized to receive for the current fiscal year, VIDE is scheduled to receive $82.2 million in ARRA funds from the Department. As a result of its insufficient action to address significant weaknesses,VIDE requires close monitoring and greater Departmental oversight. As such, we suggest that your offices
- Provide enhanced monitoring to help ensure that the GVI meets the requirements of the 2009 Special Conditions and the unresolved issues in the 2002 Compliance Agreement.
- Provide enhanced monitoring of VIDE’s activities with respect to the Department’s programs and funds including ARRA funds.
- Consider stronger actions, such as those outlined in the General Education Provisions Act, to protect Federal interests.
A copy of our final audit report issued to the GVI and VIDE is included in its entirety as an enclosure to this alert memorandum.
Department Response
We provided a preliminary copy of this memorandum to the Department for comment. In response, the Office of Elementary and Secondary Education (OESE) and the Department’s Risk Management Service (RMS) agreed with the findings included in this memorandum. OESE added that under the 2009 Special Conditions, RMS required that VIDE develop and implement a Corrective Action Plan (CAP) to address and resolve the longstanding problems. OESE further noted that 1) VIDE developed and submittedthe CAP by the due date; 2) VIDE and the third party fiduciary are working toaddress the action steps identified in the CAP; and 3) RMS is closely monitoring VIDE’s progress in making the needed improvements in these areas. OESE comments are enclosed.
Corrective actions proposed (resolution phase) and implemented (closure phase) by your offices will be monitored and tracked through the Department’s Audit Accountability and Resolution Tracking System. For further information, please contact Denise M. Wempe, Regional Inspector General, Region IV, at (404) 974-9416.
Alert memoranda issued by the Office of Inspector General will be made available to members of the press and general public to the extent information contained in the memoranda is not subject to exemptions in the Freedom of Information Act (5 U.S.C. § 552).
Enclosure 2
Electronic cc:
Tony Miller, Deputy Secretary, Office of Deputy Secretary
Martha Kanter, Under Secretary, Office of the Under Secretary
Andy Pepin, Delegated to Perform the Duties of the Assistant Secretary, Office of Special
Education and Rehabilitative Services (OSERS)
Kevin Jennings, Assistant Deputy Secretary, Office of Safe and Drug-Free Schools
Edward Anthony, Deputy Commissioner, OSERS – Rehabilitative Services Administration (RSA)
David Esquith, Director, State Monitoring and Program Improvement Division, OSERS –RSA
Patty Guard, Acting Director, OSERS – Office of Special Education Programs (OSEP)
Ruth Ryder, Director, Monitoring & State Improvement Planning Division, OSERS – OSEP
Insuk Chinn, Post Audit Group, Office of the Chief Financial Officer
Delores Warner, Audit Liaison, Office of Elementary and Secondary Education
Tina Otter, Audit Liaison, Risk Management Service
Anthony White, Audit Liaison, OSERS – OSEP
Robert Dufford, Audit Liaison, OSERS – RSA
Michele Padilla, Audit Liaison, Office of Safe and Drug-Free Schools
Sherrice Rucker, Audit Liaison, Post Audit Group, Office of Chief Financial Officer
The Department of Education’s mission is to promote
studentachievement and preparation for global competitiveness
by fosteringeducational excellence and ensuring equal access.
OESE Comments to the Draft Alert Memorandum
MEMORANDUM
TO: Keith West
Assistant Inspector General for Audit
FROM: Thelma Meléndez de Santa Ana, Ph.D – /s/
SUBJECT: Virgin Island Department of Education’s Current Efforts to Address Prior Audit
Findings – Audit Control Number: ED-OIG/L04J0015
The Office of Elementary and Secondary Education (OESE) concurs with the subject of the Alert Memo and bases its conclusion on the A-133 and OIG audits, site visits, and discussions with Virgin Islands Department of Education (VIDE) officials. In some cases, we conclude that VIDE has not effectively resolved certain recurring equipment issues because it lacks local funding to accomplish the remedies, as reported by them. For example, VIDE has requested the use of State Fiscal Stabilization Funds so that it could acquire a new warehouse, which we concluded is desperately needed, to secure the equipment in order to help prevent theft. While program requirements do not permit such use of funds, we are in the process of requiring that VIDE develop an interim solution, using non Federal funds for managing the propert in accordance with Federal regulations. Also, we will require that VIDE provide a timeline for completing this. However, in other cases, for example, VIDE continues its failure to implement a system-wide approach for adequately maintaining proper documentation to account for the goods or services procured through program grant funds.
Under the 2009 Special Conditions, by September 1, 2009, Risk Management Services (RMS) required that VIDE develop and implement a Corrective Action Plan (CAP) to address and resolve the longstanding problems. We note here that VIDE developed and submittedthe CAP by the September 1 due date and that VIDE and the third party fiduciary are working toaddress the action steps identified in the CAP. RMS is closely monitoring VIDE’s progress in making the needed improvements in these areas.
Final Report
ED-OIG / A04J0004Page 1 of 20
UNITED STATES DEPARTMENT OF EDUCATION
OFFICE OF INSPECTOR GENERAL
Audit Services
Region IV
November 13, 2009
Control Number
ED-OIG/A04J0004
Honorable John P. deJongh, Jr.
Governor of the Virgin Islands
Office of the Governor
21-22 Kongens Gade
St. Thomas, VI 00802
Honorable Dr. LaVerne Terry
Commissioner
Virgin Islands Department of Education
44-46 Kongens Gade
St. Thomas, VI 00802
Dear Governor deJongh/Dr. Terry:
This final audit report, Control Number ED-OIG/A04J0004, presents the results of our audit titled Virgin Islands Department of Education’s Current Efforts to Address Prior Audit Findings. The objective of the audit was to determine the status of the Virgin Islands Department of Education’s (VIDE) actions to address previously reported audit deficiencies and provide suggestions related to additional improvement needed. Our review covered audits issued from 2003 through 2008.
BACKGROUND
VIDE is responsible for the administration and operation of all publicly supported elementary and secondary education facilities and programs in the Virgin Islands (VI). This responsibility covers vocational, adult, special education, supportive services such as school lunch programs, pupil transportation, and library services to non-public schools in the territory. Between October 2002 and June 2009, VIDE drew down more than $151.4 million[2] in U.S. Department of Education (Department) funds related to its fiscal year (FY) 2003 through FY 2009 grant awards to support its education programs. Prior to June 1, 2009, VIDE had a balance of almost $72.8 million in Department funds available for drawdown related to the FY 2003 through FY 2009 grant awards. However, VIDE failed to draw approximately $21.4 million in Department funds timely, leaving an available balance of $51.4 million as of June 1, 2009.
VIDE has had a history of unsatisfactory performance in the administration of the Department’s programs. As early as 1998, the Department’s Office of Special Education and Rehabilitative Services (OSERS) designated VIDE a “high-risk grantee” and imposed special conditions on its FY 1998 Special Education grant award. When VIDE did not demonstrate significant progress, OSERS entered into a voluntary compliance agreement with VIDE in December 1999. The agreement ensured a continued flow of Special Education funds while VIDE implemented a structured plan to come into compliance with the statute. Also in 1999, the Department imposed special conditions on grant awards to the GVI and its agencies, because GVI could not ensure proper expenditures of grant funds and was not current with its Office of Management and Budget (OMB) Circular A-133 audits.
Despite the imposition of special conditions, serious deficiencies continued to exist in a number of Department programs. As a result, on September 23, 2002, the Department entered into a 3-year comprehensive Compliance Agreement with the VI to develop integrated and systemic solutions to VIDE’s problems in managing the Department’s funds and programs. The Compliance Agreement addressed the areas of (1) Program Planning, Design, and Evaluation, (2) Financial Management, (3) Human Capital, and (4) Property Management and Procurement. However, neither the GVI nor VIDE complied with the terms of the 2002 Compliance Agreement. The GVI lacked significant progress in developing and implementing a Credible Financial Management System (CFMS) as required by the agreement. As a result, the Department required the GVI to hire a third-party fiduciary to manage its grant funds, starting with the 2004 grant awards. In August 2006, VIDE contracted with Alvarez & Marsal Public Sector Services (A&M) as its third-party fiduciary. Subsequent to VIDE’s contract with A&M, our audits continued to identify systemic internal control weaknesses similar to those leading up to the requirement for the third-party fiduciary.[3] In addition, A&M had not addressed all of the requirements of the contract and special conditions as required, including the effective management and oversight of property.
A&M’s contract was to have ended in July 2009. On May 15, 2009, the Department approved VIDE’s selection of the firm Thompson, Cobb, Bazilio, and Associates based in Washington, D.C., to replace A&M and serve as its third-party fiduciary. However, A&M’s contract has been amended to extend until December 31, 2009.
The Department’s most recent 2009 Special Conditions include the requirement that the GVI make significant improvements in all aspects of its fiscal management, including fully implementing its CFMS. According to the special conditions, noncompliance with any of the special conditions will negatively impact the GVI and its agencies’ ability to continue to receive Department funds and could result in enforcement or other actions. According to Section 454 of the General Education Provision Act (20 U.S.C. § 1234 (c )),when a recipient “is failing to comply substantially with any requirement of law applicable” to the Federal program funds, the Department is authorized to 1) withhold funds; 2) obtain compliance through a cease and desist order; 3) enter into a compliance agreement with the recipient; or 4) take any other action authorized by law.
As of the date of our audit, the GVI was not current with its OMB Circular A-133 audits. Based on information in the Federal Audit Clearinghouse, the GVI's A-133 audits were submitted late for audit years 2003, 2004, 2005 and 2006. The GVI had not submitted its A-133 audits for 2007 or 2008
AUDIT RESULTS
We found that although VIDE had implemented some controls to address prior audits, VIDE had not sufficiently addressed or taken the necessary actions to resolve prior recommendations in the areas of (1) Financial Management, (2) Human Capital, and (3) Property Management and Procurement. For all six of the prior OIG audit reports reviewed, VIDE had not taken the necessary actions to resolve the audit deficiencies identified. Specifically, VIDE
- Had not fully implemented a CFMS that meets needs across the VI (Financial Management);
- Continued to submit late liquidation requests to the Department (Financial Management);
- Failed to submit A-133 audits timely (Financial Management);
- Had not completed an accurate and complete teacher qualification and personnel database (Human Capital);
- Continued to have an ineffective property management system in place (Property Management and Procurement); and
- Had not taken appropriate measures to implement adequate contract administration policies and procedures (Property Management and Procurement).
As a result, VIDE lacked sufficient internal controls to manage Departmental funds, programs, and activities. The Government Accountability Office’s Standards for Internal Control[4] state that internal control
should provide reasonable assurance that the objectives of the agency are being achieved in the following categories: 1) effectiveness and efficiency of operations including the use of the entity’s resources; 2) reliability of financial reporting, including reports on budget execution, financial statements and other reports for internal and external use; and 3) compliance with applicable laws and regulations.
VIDE’s inability to address issues identified in audits of its activities may 1) adversely impact VIDE’s management of future funding including the $82.2 million allocated to VIDE under the American Recovery and Reinvestment Act of 2009 (ARRA) as well as the allocation of funding that VIDE is otherwise authorized to receive each fiscal year; and 2) adversely impact the Department’s overall mission to ensure access to equal educational opportunity for every individual. Further, GVI is not current with the required OMB A-133 audits, which are required annually to assure that Federal funds are used appropriately and documented accordingly.
In its comments to the draft report, GVI concurred with Recommendations 1.1, 1.2, and partially concurred with Recommendation 1.3. GVI stated that VIDE is pursuing staffing an independent internal audit group by FY 2010, that both the GVI and VIDE have made strides in responding to prior OIG audits, and that the corrective actions are an ongoing collaborative effort. GVI made no other comments specifically related to the recommendations. However, GVI stated that it did not concur with the Financial Management issues identified in the report. Specifically, it did not concur that VIDE lacked a CFMS and that VIDE continued to submit late liquidation requests. GVI stated that VIDE partially concurred with the Human Capital issue and the two Property Management and Procurement issues.
GVI’s response did not contain sufficient information nor did it provide additional documentation in support of its nonconcurrence with the Financial Management issues. As a result, we did not change the findings or the related recommendations. Because GVI’s comments address each section of the report, its comments are summarized after each section in the finding. The full text of its comments to the draft report is included as an attachment to the report.
Financial Management – VIDE Lacks A Credible Financial Management System
The 2002 Compliance Agreement required that the VI’s financial management system be integrated across departments and other management systems, including human resource management, planning and evaluation, and property and procurement. The financial management system was to be developed based on a needs assessment, which was to be performed by an independent third-party. However, in February 2005, we found that VIDE had made little progress toward developing a central financial management system. Although VIDE had created a vision document, there was no evidence that an independent third-party had performed a needs assessment. As such, we recommended that the VI move forward in implementing a fully functional central financial management system based on an independent party’s needs assessment of the system.[5]